Business

4:25 pm

Thu February 20, 2014

After A Weak Holiday Season, Wal-Mart Profits Shrink

A man shops at a Wal-Mart store in San Jose, Calif., in September. Wal-Mart on Thursday reported that its annual profits fell.

Jeff ChiuAP

Wal-Mart on Thursday reported that its annual profits failed to grow. And failed by a lot.

Full-year net income tumbled to $16 billion, down by nearly $1 billion from the previous year.

That tells you a great deal about how hard the economy has been on the lower-income shoppers who make up Wal-Mart's core customer base, according to Charles Fishman, author of The Wal-MartEffect.

"This clearly reflects the economic constraints on people who shop at Wal-Mart," Fishman said.

The holiday season was especially disappointing. For the three-month period that ended Jan. 31, U.S. same-store sales fell 0.4 percent. Wal-Mart had been predicting flat sales — not a decline. Overall, net profit for the final quarter fell to $4.43 billion, down from $5.61 billion in the same period a year ago.

Wal-Mart same-store sales continued to slide during the first half of February, amid harsh winter weather.

The company says its customers are being hurt by cuts in government benefits, higher taxes, tighter credit and rising health care costs.

The disappointing sales may help explain why Wal-Mart is not fighting Democrats' push to raise the federal minimum wage from $7.25 an hour to $10.10 by 2016.

"We have not taken a position," Wal-Mart spokesman David Tovar said in a phone interview. "We remain neutral."

The last time Congress raised the minimum wage in 2007, Wal-Mart was on board with it. Wal-Mart's then-CEO Lee Scott explained his company's core customer base was having trouble paying for basic necessities between paychecks. "We simply believe it is time for Congress to take a look at the minimum wage and other legislation that can help working families," Scott said in a 2005 speech.

Wal-Mart is the nation's biggest private employer, with a payroll of 1.3 million workers. Tovar said fewer than 1 percent of those workers make the minimum wage.

Fishman, the author, said Wal-Mart very likely would come out a winner if the wage floor were to rise. "They have 100 customers for every worker and those customers are struggling," he notes.

Joseph Johnson, a truck driver in Washington, D.C., is one of those Wal-Mart shoppers. He says he prowls the shelves of a new urban Wal-Mart for "necessities, necessities." But if his wages were to rise, "I would maybe come here even more," he said.

Regardless of what happens with wages, Wal-Mart is looking for ways to increase store sales by "delivering value and improving our service levels," Douglas McMillon, who became chief executive earlier this month, said in a statement.

The company also is focusing on opening more smaller-format stores and pushing more online sales. Wal-Mart will "invest aggressively in e-commerce," McMillon said.